Islamabad-The first-ever study of stock prices variations in Karachi Stock Exchange (KSE) has been conducted by a Pakistani scholar, who got the shocks like everyone else when KSE crashed in 2005 in a short span, causing losses to the tune of billions of rupees.
Muhammad Azam, an HEC scholar, decided to carry out his thesis on the topic of ‘Investors’ Behaviour and Stock Price Variations in the Karachi Stock Exchange’ during his PhD from the University of Paris Ouest-Nanterre La Defense, France.
The scholar has claimed that his research work would greatly help save small investors’ capital from the big players, who allegedly manipulate the stock market through media announcements and many other sources.
In 2005, KSE witnessed the worst-ever crash in the country’s history, which caused a loss of $13 billion in market capitalisation and primarily affected small investors. The US firm, Diligence Intelligence & Risk Management, prepared a report regarding this biggest financial tragedy but any research report on it by a Pakistani scholar is the first of its kind.
It is argued that the model given in the research study will permanently eliminate the bubble or any great crash like ‘KSE’s March 2005 Crash’ in the stock market. The scholar developed a Stock Prices Variations Model (SPVM), which follows the approaches of MJ Gordon (1959) and Kothari & Zimmerman (1995) models by adding more explanatory variables according to the institutional/professional investors’ behaviour of KSE (fund managers, brokers, and financial analysts etc).
The model was developed by observing past investors’ behaviour that helps to scrutinise the stock market in future, as it is able to explain the worth of stocks, their standing in the market as well as their over-reaction or under-reaction, which facilitates the investors in estimating whether their risk has been increasing or decreasing and the point where they should enter or exit the stock market.
The study covers the most significant variables that have a great impact on the investors’ decision-making behaviour and provides them – particularly ‘ordinary investors’ — a pattern about how to make a better investment in the equity market.
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